Healthcare mergers dipped in the first half of 2020, but not as sharply as expected, according to a report released Friday by Pricewaterhouse Coopers. The report, which focused on mergers between healthcare providers, payers and other services, found that the number of deals dropped 21% from the same period in 2019, as health systems shifted their resources to fighting the Covid-19 pandemic.
PwC reported a total of 483 deals in the first half of the year, a number that while low, was “not unprecedented.” The total deal value fell more sharply, at $22.4 billion in the first half of the year, down 52% from 2019. That was noted with one important caveat: only a third of health services transactions disclose deal values in an average quarter.
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While most sectors saw a decrease in activity in 2020, diagnostics companies contributed to two of the year’s largest deals. The labs, MRI and dialysis sector reported $12.5 billion in deal value, up more than 600% from the prior year, largely buoyed by Thermo Fisher Scientific’s $11.5 billion acquisition of Netherlands-based diagnostics company Qiagen N.V., and Invitae’s $1.4 billion acquisition of diagnostics company ArcherDX.
Long-term care mergers continued to account for the largest number of deals, with 158 recorded in 2020, though both deal value and deal volume fell compared to 2019.
PwC noted a slight uptick in the number of deals in June, though it expects “deal volumes will be uneven for the remainder of 2020.”
“Potential acquirers could include, for example, financial buyers who entered the crisis with a large amount of dry powder or managed care companies that have benefited from utilization declines in the short term but might face potential scrutiny for high capital levels,” the report noted. “Potential targets could include hospitals and physician medical groups who are grappling with the impact of postponed elective procedures and office visits.”
Looking specifically at hospitals and health systems, which have been hit hard by fewer patients and increased expenses due to Covid-19, a report published earlier this month by Kaufman Hall noted that the pandemic led to a “much less dramatic decline” in M&A activity in the second quarter relative to its effect on hospitals.
A total of 14 deals were announced in the second quarter, including Advocate Aurora Health’s proposed merger with Beaumont Health, which would create a $17 billion system, and a group of physicians buying back Dallas-based Steward Health Care from private equity firm Cerberus Capital Management.
Nine of the 14 deals involved divestitures by for-profit health systems, including Community Health Systems and HCA.
When asked about HCA’s M&A plans in a recent earnings call, CEO Sam Hazen said, “the likelihood of any strategic decision being made during this time is probably not that high.”
“We will continue to explore. We have a very robust pipeline for outpatient facility development or acquisitions that we’re very excited about,” he added. “I don’t know that we’re doing to see anything new in the short run. I think it’s going to take systems a while to get through this period and figure out what the next steps are.”
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